Tagged: Interest Payment

Some simple and straight rules to not fall in the vicious cycle of debt and high interest payments
Retrieved on 20th July 2017 | Moneycontrol.com

Shopping or paying with cards is one of the easiest things these days. Thanks to the magic of all the apps and payment gateways, using a credit card is as simple as a few dabs on the mobile screen.

But even with all the ease and convenience, paying your credit card bills requires real money. The reason many people fall into a debt trap is because they do not realise that however long the credit cycle might be, one always has to pay every penny (often times more) that you spend.

To not fall in the vicious cycle of debt and high interest payments, there are some simple and straight rules that one can follow.

Be prompt with payments

There’s a reason why credit cards are called credit, because you owe the money spent on the card to the lender. Hence, don’t expect as leeway or grace when it comes to making payments. Credit card companies are very stringent about any delays and promptly impose late payment fees, etc. Also, any delay or missing payment is also reported to credit rating agencies like CIBIL or Equifax and impact the credit score. Hence, the need to make timely payments cannot be truly overstated.

Don’t burn the credit limit

So, your card gives you a high credit limit, say 1 lakh. Why bother with the spend? Burn it all and pay later? That is surely not a good idea, namely because the percentage of credit limit consumed every month is a parameter in accounting the credit score. Hence, you are not considered to be of sound profile, if you use up say 90% of your card every month. Also, in case you track up a big bill each month, there is a possibility that you might land in financial tight spot.

Number of credit cards

People love to flaunt the cards. There’s a common belief that the more credit cards one has, the better financially networked he or she is. Well, nothing could be further from truth. The more the number of cards, the higher the possibility for over-spending. Also, each time, a credit card application is made; it is registered in the CIBIL records hence, it is best to have 2 or maximum 3 cards. In case, you desire upgrade your card to a higher one.

Credit period

Typically, there is an interest-free period on credit card purchases, which can even go up to 45-plus days. To avail this benefit, the outstanding amount has to be nil. So, if you roll over certain amount to next month’s billing, there’s no interest-free period on the new purchases.

Avoid cash

Cash withdrawals on your card do not come with an interest-free period. There could be a one-time fee plus interest charges that start from day one till you repay the amount. Given the interest rates charges and so on, withdrawing cash from credit cards should be strictly avoided, unless there is an urgency.

In the end, the simple mantra of happy credit-card-living is simple; spend less, pay all. With prompt payments and credit management, the credit card can be a nice tool that can aid you in everyday life, right from paying for your cabs or buying a new shirt. So, follow these steps and enjoy a stress free life.

The Central Board of Trustees of EPFO on Tuesday took a decision to pay interest on dormant accounts from April 1, 2016. However, it could not take a decision on making this applicable retrospectively from April 1, 2011 till March 2016.
By: Sarbajeet K Sen | New Delhi | March 30, 2016 4:33 PM | Financial Express

The Central Board of Trustees of EPFO on Tuesday took a decision to pay interest on dormant accounts from April 1, 2016. However, it could not take a decision on making this applicable retrospectively from April 1, 2011 till March 2016.

After its decision to pay interest on dormant accounts from April 1, 2016, the Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO) is likely to consider payment of interest on dormant accounts from April 1, 2011 to March 31, 2016.

“The trade unions had demanded payment of interest on dormant accounts from April 1, 2011 itself. However, the government has deferred a decision on this and has applicable from April 1, 2016 onwards. We will take up the issue in the next meeting of the Central Board of Trustee (CBT),” D L Sachdeva, CBT Member representing All India Trade Union Congress (AITUC) told FeMoney.

The CBT on Monday took a decision to pay interest on dormant accounts from April 1, 2016. However, it could not take a decision on making this applicable retrospectively from April 1, 2011 till March 2016.

The UPA government had announced that no interest will be paid on dormant accounts with effect from April 1, 2011. Dormant accounts are those where no money has been credited for a period of 36 months.

Sachdeva said with nearly Rs 32,000 crore lying in 9 crore dormant accounts, a rough calculation of 8.5 per cent annual rate of interest, the unpaid interest since April 2011 works out to Rs 12,500 crore. It would be substantially larger if compounded annually. “All union representatives in CBT were unanimous that the interest should be credited in these accounts,” Sachdeva said. He said that they have pressed that these issues should be discussed in the finance and investment committee of the CBT after which it should be placed before the board.

Former, Central Provident Fund Commissioner (CPFC), A Vishwanathan, agreed that the government should pay interest on dormant accounts since April 1, 2011. “The original decision itself is questionable. Since the money is held in trust it is not good to hold back interest for the interim period. This is more so because EPF contribution is made by the subscriber to build a corpus which may be required at retirement or when one does not have a job or is unable to work,” Vishwanathan said.

He pointed out that EPFO was making gains on the investment and it was wrong not to reward subscribers. “EPFO is making gains on investment. It is morally dishonest not to pay the subscribers,” Vishwanathan, who headed EPFO at one time, said.

RADHIKA MERWIN | February 14, 2016 | Hindu Business LineSBI’s FlexiPay lets you to borrow more. But don’t bite off more than you can chew

Buying a home is a major milestone for most young people with a secure job.

But it can also be one of the most stressful financial decisions you take at the start of your career, as it can set you back financially by a few years.

If you have put off buying your dream home because you could not afford to pay the hefty equated monthly instalments (EMIs), the recently launched home loan product by State Bank of India could appear attractive.

For one, the product, known as SBI FlexiPay, helps you get a higher loan amount than you would normally be eligible for under a regular home loan.

Two, for the initial three-five-year moratorium period, you will pay only the interest on your loan, after which you will have to pay moderated EMIs. These will be stepped up in later years.

The ability to borrow more and the lower EMI in the initial years may tempt you to go for that sprawling villa you have been eyeing for some time now. But here are a few things you need to take note of before signing up.

Most banks decide on your eligible loan amount based on the value of the home and your affordability. Banks offer loans at about 75-80 per cent of the value of the house (loan-to-value ratio). But banks may offer you a lesser amount than this if your affordability is lower.

Do you need more?
Say, for instance, you decide to buy a house worth ₹80 lakh. Based on a 75 per cent loan-to-value-ratio, the bank can offer you a loan up to ₹60 lakh. But, based on your income, the bank may offer you only a ₹50-lakh loan.

Under SBI’s FlexiPay, you can now be eligible for ₹60 lakh (20 per cent more than that under a regular home loan).

The reason for the bank’s largesse is the assumption that your income level will increase over the years, and you will be able to pay the additional loan amount comfortably.

It may seem an attractive option for you, too, as the additional loan amount will bring you closer to your dream home.

But it will also mean that you are stretching yourself thinner on your income. If earlier the bank offered you a loan that translated into an EMI of half your monthly income, you will now be able to get a loan in which your monthly payments are maybe about two-thirds your monthly income.

You may want to assess your monthly expenses to see if you can actually afford a higher loan.

Honeymoon period
To relieve you of the additional burden on your EMI (on the higher loan amount), SBI makes the deal sweeter by allowing you to pay a lower amount in the initial years.

The product allows you to pay only the interest component in the first three (for a ready-to-buy home) to five (under construction house) years.

Hence, on a ₹60-lakh home loan at 9.5 per cent for 25 years, while your EMI works out to about ₹52,420 under a regular home loan scheme, under the new SBI scheme, you have the option of paying only about ₹47,500 a month (the interest portion) for the first three years.

A clear saving of about ₹4,900 a month for three years sounds like a good deal. But this respite comes at a cost.

The EMI on your home loan, normally, goes towards payment of both the principal and the interest components of the loan. In the initial period, say, three-five years, a chunk (85-90 per cent) of your EMI goes towards payment of the interest component.

As you move towards the end of your loan period, the major portion of your EMI goes towards paying your principal amount.

Even so, by paying only the interest component in the first three years, you end up increasing your total outgo on the loan by the end of the tenure.

In the above example, after three years, on your principal of ₹60 lakh, the bank will calculate EMI based on the original tenure of 25 years (assuming the same rate of 9.5 per cent).

So your monthly payment from ₹47,500, will go up to ₹52,420, a straight 10 per cent jump from the fourth year.

So, you will have to ensure that you can afford the bump up in monthly payment after three years.

Making good
SBI calculates your EMI from the fourth year, based on the original tenure (25 years) and not the remaining tenure (22 years) after the three-year principal moratorium period. This is to start you off with a lower EMI.

Remember, if the loan is spread out over a longer tenure, it results in lower monthly payment. Since you pay a lower EMI from the fourth to the sixth year, SBI gradually steps your EMI from the seventh year onwards, to make good the lower amount. So, from ₹52,420, the bank will increase the EMI by about 5 per cent to about ₹54,900 from the seventh year.

In the above example, under SBI’s FlexiPay scheme, you may pay about ₹4 lakh more on your loan over the tenure of 25 years compared with a regular home loan.

BottomlineThe scheme offers you flexibility at a cost that is not too high. But be sure that you are able to afford the higher EMIs in subsequent years.

As if the mental harassment of delayed delivery of a house is not bad enough, you could also be losing 85% of the tax benefit on your home loan, for no fault of yours.

A tax deduction of Rs 2 lakh per year is allowed against payment of interest on home loans, if the house is acquired within three years of taking the loan. In case the possession happens after three years, the permissible deduction falls to just Rs 30,000 a year — a reduction of 85%.

In the past couple of years most home deliveries have been delayed beyond three years from time of purchase, making the buyers ineligible for the tax deduction— a fact they would have not known at the time of taking the home loan.

Given the stress in the real estate sector, most builders are now committing deliveries after four years of booking, so home buyers lose out on a big chunk of the potential tax deduction.

For people in the top income tax bracket of 30% (annual taxable income of Rs 5 lakh or more) the benefit resulting from this provision will drop from Rs 60,000 to Rs 9,000 a year. On a home loan of Rs 50 lakh taken at 9% interest for 20 years the total loss through the entire repayment period will be Rs 8.81lakh.

Partner and national head of KPMG, Vikas Vasal, said the three-year possession condition was introduced to expedite construction of projects.

But, with most housing projects running late, the government must amend the relevant clause to ensure that the benefits do accrue to home buyers, he added. The deduction limit was raised from Rs 1.5 lakh to Rs 2 lakh in 2014-15.

“The income tax department must address the issue in a way that home loan takers are not disqualified from availing of the benefit for no fault of theirs,” says senior tax consultant Dinesh Kanabar.

Brijesh Parnami | 07 Apr, 2015 17:56 IST | Business WorldHome loan can be burdensome as you think the interest outgo squeezes your income. But on the contrary, it actually helps you save more money by providing a breather from taxes, writes Brijesh Parnami, Chief Executive Officer, Destimoney Advisors

Tax outgo skims the hard-earned money you make out of your jobs and businesses. However, to be a responsible citizen, there is no other way out. One has to submit taxes without a fail, to allow the government to take up tasks meant for creating better services and infrastructure for its people.

To ease the tax burden, the government from time to time provides breather in the form of tax rebates. One of the effective tools for saving tax is a home loan. By purchasing a house, you not only become eligible for tax deductions but also a proud owner of a home.

The sole aim of the government to provide lucrative tax breaks on home loan is just to push people to purchase properties. By doing so, it keeps the housing segment booming, the ripple effect of which is seen on other sectors as well.

Home loans are a great way to save tax and enjoy long-term relief. Income Tax Act, 1961 states that loans can be used as tax-saving instruments too. After procuring a home loan for purchasing a property, a person can claim tax deductions on the principal amount as well as on the interest that he would be paying towards servicing the loan.

Tax benefits on home loans are available under the Income Tax Act Sections 24, 80C and 80EE. Only individuals and HUFs (Hindu Undivided Families) are eligible for the benefits. These tax benefits are available only on home Loans and not on Non-Home Loans such as loan against property (LAP) etc.

Tax Benefit On Home Loans
Purchasing a home does not come easy. There is a fat chunk of money that that has to be paid as down payment and for the rest a home loan can be taken, for which one has to pay higher interest rates. But this home loan is your saviour from the taxes that you have to pay year after year. As home loans are for long term, one can enjoy the tax benefits on it during the designated period for which the loan has been sanctioned.

Tax benefits are available on two components of a home loan — Principal amount and the Interest. While the benefit on principal repayment can be availed under Section 80C, the same can be claimed on the interest repayment under Section 24.

The UPA government had introduced Section 80EE in the budget 2013-14 offering additional tax benefits on interest repayment, with certain riders. First time buyers were who took home loan in the financial year 2013-14 became eligible for availing additional tax benefit on Rs 1 lakh for interest payment over and above the tax deduction available under Section 24. For unutilized interest, the deduction was available for financial year 2014-15 as well. This additional tax saving means provided people more room to save extra bucks. But the government did not extend it in the following years and this year too there was no mention of Section 80EE.

For the financial year 2015-16, the benefits are available on Section 80C and Section 24 only.
·Section 80C — On repayment of Principal Amount & Stamp Duty/Registration Charges

On Repayment of Principal Amount
The amount that is repaid by the borrower towards the principal component of the home loan is allowed as tax deduction under Section 80C of the Income Tax Act. One can avail maximum tax deduction to the tune of Rs 1.5 lakhs under this section. This limit of Rs 1.5 lakhs is towards the total amount paid collectively for PPF, Tax Saving FDs, Equity oriented mutual funds, National Savings Certificates, among others.

The section does not allow the benefit during the years when the property is under construction mode. One can avail the tax deduction only after completion certificate has been given. However, important point to note is that a taxpayer can aggregate the interest that has been paid when the construction was on and can claim the deduction in five equal instalments in the five consecutive financial years, beginning the year during which the construction completes.
However, if the owner sells the property on which he has sought the tax benefit within the five years from the date of obtaining the possession then no tax deduction is allowed. If the assessee has availed tax benefits during this period, then it is treated as income and makes it liable for tax payment.

Also, the deduction is available on payment basis, notwithstanding the year in which the payment was made.

On Stamp Duty & Registration Charges
Section 80C also provides for tax deduction on the stamp duty and registration charges that are paid while purchasing the property. One can claim the deduction as prescribed in section 80C i.e. a maximum of Rs 1.5 lakhs and it is again the total amount paid collectively for PPF, Tax Saving FDs, Equity oriented mutual funds, National Savings Certificates, among others. The deduction can be claimed in the year in which these payments are made.

Section 24 — On payment of interest
In case of purchase of property, this benefit can be availed only when the construction of property is complete and the possession certificate has been provided. Other than purchase of property, the tax deduction is allowed on loans taken for construction, repair, renewal and reconstruction of a residential house property. The income on house property is adjusted with amount of Interest paid on home loan.

Rs 2 lakh is the maximum deduction limit one can enjoy under this section in case of self-occupied property. Besides, if the property is not completed within three years from the date of loan sanction, the interest benefit comes down to Rs 30,000 from Rs 2 lakh.

In case the property is not self occupied, there is no limit and one can claim the whole interest for tax deduction sake. However, there is a fine print here: If the owner does not self occupy the property and resides at any other place due to responsibilities related to job or business, then the deduction one can avail is only Rs 2 lakh.

Unlike the deduction available under section 80C on payment basis, the deduction under this section is available on accrual basis. So the deduction has to be claimed on yearly basis even if even if no payment has been made during the year.

*Borrowers are advised to consult Tax Consultant/Chartered Accountant in all the cases.

Ashwini Kumar Sharma | First Published: Wed, Jan 14 2015. 07 01 PM IST | Live Mint
You can claim tax benefit for both, but only if you fulfil the conditions
If you are living on rent and also servicing a home loan, you can take advantage of claiming tax exemption for both house rent allowance (HRA) and repayment of home loan. The equated monthly installment (EMI) against your home loan is a combination of principal repayment and interest on the outstanding loan. All three—HRA, principal repayment and interest payment—can be claimed as exemption under separate sections of the Income-tax Act. However, there are certain conditions that you need to fulfill before you can do so. Let’s have a look at these.

Exemptions and deductions
Income tax rules allow tax payers to claim exemption against some investments and expenses that the assessee has incurred out of her gross income. While exemption for HRA can be claimed under section 10(13A) of the Income-tax Act, principal repayment of home loan and interest on it can be claimed under sections 80C and 24b, respectively.

HRA can be claimed as lowest of actual HRA received from the employer or 50% of the salary for employees living in metro cities (40% for those residing in cities other than metro) or actual rent paid minus 10% of salary (basic + dearness allowance + turnover based commission).

Principal repayment exemption can be claimed up to the threshold limit under section 80C, which is Rs.1.5 lakh, or the actual principal repaid, whichever is less.

Similarly, interest repayment can be claimed up to the threshold limit under section 24b, which is Rs. 2 lakh (if the house is self-occupied) or actual interest paid on home loan, whichever is lesser. In case the house you own is rented out, you can claim the entire interest you pay on the home loan as deduction.

What are the requisites?
You can claim HRA exemption if you are living on rent, whereas you claim deduction for repayment of home loan. You can claim tax benefit for both, but only if you fulfil the conditions.

Let’s say you have bought a house by taking a home loan and you also live in it. In this case, you will not be able to claim HRA, but will be able to claim tax benefits on both the principal and interest.

If you have bought a house with the help of a home loan and live in another house on rent, you can claim tax benefit for both. But if the house you bought and the house you live in are in the same city, you should have a genuine reason for not living in the house that you own. The reasons could be that the house you own is too far from your workplace, or the commute is very difficult.

You may need to provide these explanations to your employer, or the income tax authority in case there is a scrutiny of the details that you have provided.